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Settlement and release does not necessarily bar unjust dismissal claims

The Federal Court of Appeal has reaffirmed that an employee who signs a full release of claims is not necessarily barred from bringing an unjust dismissal claim pursuant to section 240 of the Canada Labour Code.

In Bank of Montreal v. Li, 2020 FCA 22, Ms. Li was dismissed by the Bank of Montreal after 6 years of service. Ms. Li was offered, and accepted, a lump sum payment. Ms. Li signed a settlement agreement releasing the Bank from any and all claims arising out of the termination of her employment.

Nonetheless, Ms. Li commenced an unjust dismissal shortly after signing the settlement agreement.

The Bank raised a preliminary objection to the adjudicator’s jurisdiction to hear Ms. Li’s complaint, on the basis that the claim had been fully settled and released. The objection was dismissed, and a judicial review application was unsuccessful. The Bank appealed to the Federal Court of Appeal.

Following its earlier decision in National Bank of Canada v. Canada (Minister of Labour), 1998 CanLII 8077 (FCA) affirming 1997 CanLII 5297 (FC), the Federal Court of Appeal dismissed the Bank’s appeal, allowing the employee to proceed with her unjust dismissal complaint. Critical to the Court’s decision was s. 168(1) of the Code, which prevents parties from contracting out of rights under Part III of the Code:

This Part and all regulations made under this Part apply notwithstanding any other law or any custom, contract or arrangement, but nothing in this Part shall be construed as affecting any rights or benefits of an employee under any law, custom, contract or arrangement that are more favourable to the employee than his rights or benefits under this Part.

The Bank argued that s. 168(1) should only restrict prospective waivers (waivers of claims that have not yet arisen), whereas retrospective waivers (waivers of claims that have already occurred) should be permissible. Restricting retroactive waivers, the Bank argued, would be a disincentive for employers who would want to offer generous settlements at the time of dismissal.

The Court did not accept that any distinction should be drawn between prospective and retrospective waivers. While the Court agreed that settlement agreements are to be encouraged, it concluded that such matters are policy decisions best left to Parliament to decide. Of note, the Code has been amended on a number of occasions since National Bank was decided, but section 168(1) has been left untouched. The result is that an employee’s settlement and release of claims against an employer continues to not prevent the employee from commencing an unjust dismissal action.

This decision does not mean that a settlement and release is to be ignored entirely in an unjust dismissal claim. The Court noted that a release agreement can still be taken into consideration by an adjudicator when assessing remedies, stating:

There is no doubt in my mind that in assessing the proper remedy, the adjudicator will take the release agreement into consideration.

Note: The decision under review was issued prior to amendments to the Code came into effect, including s. 242.2(1)(a)(iii), which now states that “[t]he Board may reject a complaint referred to it under subsection 241(3), in whole or in part…if the Board is satisfied that…the complaint has been settled in writing between the employer and the complainant.” The extent to which this amendment may now restrict an employee’s ability to proceed with an unjust dismissal claim after signing a release will remain to be seen.